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Direct Investment and Local Content Rules in the European Community

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  • Andersson, Thomas

    (Research Institute of Industrial Economics (IFN))

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    Abstract

    This paper analyses the behaviour of competing governments in the EC with respect to inflows of direct investment. Solving a non-cooperative sequential bargaining game in which host countries gain from direct investment through tax revenue or imposition of forced local subcontracting, it is concluded that a successful 1992 program does not allow discrimination of direct investment. As they bid against each other for the attraction of projects, the EC countries will give away rents generated by protectionism. Hence, multinational firms may temper the emergence of trading 'blocs' through their ability to play individual countries against each other.

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    File URL: http://www.ifn.se/wfiles/wp/wp288.pdf
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    Bibliographic Info

    Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 288.

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    Length: 26 pages
    Date of creation: Dec 1990
    Date of revision:
    Handle: RePEc:hhs:iuiwop:0288

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    Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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    Related research

    Keywords: Direct investment; Game theory; Multinational firms;

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    1. Chris Doyle & Sweder Wijnbergen, 1994. "Taxation of foreign multinationals: A sequential bargaining approach to tax holidays," International Tax and Public Finance, Springer, vol. 1(3), pages 211-225, October.
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